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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs
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To: R2O who wrote (660)6/16/2004 12:42:37 PM
From: hueyoneRead Replies (1) of 786
 
When IRS recognizes 'Stock Options Expense' as expense, we will know things are real.

Well then, things are already "real"---and have been for a long time, because the IRS has always recognized stock option expense as an expense. That is where the tax benefit from exercise of stock options comes from. The IRS determines the stock option expense deduction at time of exercise by recognizing the difference between market price of the stock and exercise price of the option at time of exercise. This expense deduction then results in the tax benefit or tax credit that you see on the cash flow statements below the net profit line.

This blatant contradiction, whereby companies claim a tax deduction for stock option expense with the IRS, but then turn around and claim stock options are not an expense in their reports to shareholders, resulted in Senator McCain and Senator Levin proposing a bill a couple of years ago that would require companies to tell the IRS and shareholders the same thing---if the company claimed stock options were a tax deductible expense to the IRS, then they would have to admit to shareholders that stock options were an expense, if companies claimed to shareholders that stock options were not an expense, then companies wouldn't be allowed to claim a tax deduction with the IRS. Well financed lobbies defeated the bill though.

Regards, Huey
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